Pricing Disparities: Do They Necessarily Mean Trouble?

If the new HMDA data show that certain protected groups pay more for loans than other protected groups, on average, do these pricing disparities prove unlawful discrimination?

No, price disparities in the HMDA data do not prove unlawful discrimination. However, such disparities may indicate a need for closer scrutiny. Supervisory agencies investigating disparities typically collect additional information about price determinants, such as borrower credit history, debt-to-income ratio, and loan-to-value ratio, from lenders’ loan files or other sources. Without information regarding relevant price determinants, one cannot draw definitive conclusions about whether particular lenders discriminate unlawfully or take unfair advantage of consumers.

If HMDA data do not include prices in the prime lending market, how will the government detect and prevent price discrimination in that market?

The federal banking agencies will continue to evaluate the potential for price discrimination in the prime lending market using the “Interagency Fair Lending Examination Procedures.” The procedures direct examiners to identify risk factors for illegal discrimination by reviewing a variety of information, including the institution’s records, to understand the institution’s program for compliance with anti-discrimination laws. Examiners evaluate a lender’s risk of price discrimination based on several factors, including the relationship between loan pricing and compensation of loan officers or brokers; the presence of broad pricing discretion; the use of a system of risk-based pricing that is not empirically based and statistically sound; substantial disparities, revealed by samples of loan files, among prices quoted or charged to applicants who differ in their protected characteristics, such as race; and consumer complaints alleging price discrimination. The level of risk of price discrimination determines the depth and breadth of the examination.